Small Businesses & Banks Buried by Regulations

Tait Trussell is a national award-winning writer, former vice-president of the American Enterprise Institute and former Washington correspondent for The Wall Street Journal.


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The law against “too-big-to-fail” is making some banks “too-small-to-survive.”

New Democrat-inspired federal rules and regulations are dramatically jacking up lending costs while limiting access to capital needs of small businesses and individuals.

As one banker testified June 16 before the House Subcommittee on Economic Growth, Tax, and Capital Access, “New rules substitute Washington bureaucratic judgment for that of local bankers.”

In every community, banks are actively looking for lending opportunities, said the American Banking Association (ABA), the voice of the $13 trillion banking industry. But in the lingering Obama depression, all businesses, including banks, are fearful about taking on new financial obligations. Business failures and high unemployment have impaired credit quality and increased loan losses. Despite these headwinds, banks were able to originate about $1.7 trillion in new loans in the third quarter of 2010, the ABA said.

Today, bankers are asking more questions of borrowers, and regulators certainly are asking more questions of banks. Banks don’t turn down loan applications because they don’t want to lend. Lending is what banks do. But just as too much risk is too risky, regulations that discourage banks from making sound loans has severe economic results. Regulatory over reaction means fewer loans and can “set in motion a ‘death spiral’ where the borrower has to sell assets at fire-sale prices to raise cash, which then lowers the ‘market values’ of other assets, which increases the write downs the lender has to take, and so on,” noted the ABA.

At the June 16 House hearing, Thomas Boyle, vice chairman of State Bank of Countryside, in Countryside, Illinois, told the subcommittee that the “hundreds of new regulations expected from the Dodd-Frank Act…are slowly but surely strangling traditional community banks[.]” (The 2,253-page Dodd-Frank law is said to be the most complex financial law ever enacted. It was promoted as a way to stop the problem of too-big-to-fail. The result is some banks will be too-small-to-survive.)

“With the regulatory over-reaction, piles of new laws, and uncertainty about government’s role in day-to-day business of banking, meeting local community need is difficult at best,” testified Boyle. “Without quick and bold action to relieve regulatory burden we will witness an appalling contraction of the banking industry…that will inevitably translate into fewer loans to small business….New rules substitute Washington bureaucratic judgment for that of local bankers.”

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  • theleastthreat

    I think we need an environment that yields more opportunity. That would most likely take less regulation and less taxation to get businesses starting up or resuming normal operations. I think I've said here before that regulations like the CRA helped no one and harmed everyone. And subsidies don't necessarily incentivize and when they do, it's not in expected ways. Also, with cheap, abudant energy, you can do anything.

  • Chezwick_mac

    My God, I wish one of these Republican contenders would have the courage to come and say it as clearly and concisely as this:

    "Our economic system is based on FREE ENTERPRISE. It is the goose that lays the Golden Egg, the source of revenue for all those wonderful social programs that liberals love. But instead of nurturing and encouraging it, the liberals want to suffocate it with taxes and regulations.

    "We Republicans want to liberate the system from these constrictions, so it will do what it does naturally: Become an engine that creates jobs that in turn will create the growth that will then create the revenue that will help us pay our way out of our debt crises."

    It's really that simple.

    • dan

      Precisely. The Marxists complain that the FE engine doesn't work, while they constrict both air and fuel and shove nuts and bolts down the combustion chambers. Finally, they then complain about the exhaust of the last 100 years.

    • Steve

      It may be too late. Check out the Conservative Richard Duncan's book "The Corruption of Capitalism" for a detailed macroeconomic analysis of how really terrible the world and USA economies really are. He predicted the 2008 Depression years before the collapse and is of the opinion so many trillions of private wealth was wiped out in 2008 that without major government deficits and spending the whole economy collapses. Very disheartening for conservatives. It's a very important book, along with his website.

  • Steve

    Please check out the ideas of the Conservative economist Martin Hutchinson (“Alchemists of Loss”) for the SEC regulations necessary for a transparent stable financial market that will not crater again due to Wall Street banksters. (Bring back Glass Steagall, outlaw derivatives no one understands while setting up an exchange for the others, outlaw "naked shorting" of equities, require buyers of credit default swaps have a direct insurance need as the counterparty, treat CDS’s like insurance and require reserves to be set aside like every other insurance firm, require banks to continue to have a financial interest in any MBS or CDO products they sell). Also, check out the Conservative economist Richard Duncan's "The Corruption of Capitalism" regarding the madness of unregulated financial markets, and how to create banks "…to regulated to fail". Probably too late, as nothing short of a miricle will stop the terrible deepening of the Millenial Great Depression (2008).

    • Jim

      I must agree with you. It is not over regulation of the banks that created this mess.
      What makes the over regulation theory a joke is that the collapse happened during the rein of deregulation of the banks. The deregulation of the banks was pressed for particularly under Clinton By Robert Rubin , Larry Summers and some Republican economist. named Phil Gramm. He was a person who could say with a straight face"
      "no evidence whatsoever" that the sub-prime mortgage crisis was caused in any way "by allowing banks and securities companies and insurance companies to compete against each other."
      Slippery statement at best. It wasn't the competing ;it was the cheating. They could cheat because they refused to open their books to inspection. Barney's bill is just one big loop whole

      • Steve

        Jim, Richard Duncan in his "The Corruption of Capitalism" mentions the same people you do….but he also names Alan Greenspan for pursuing the monomaniacal deregulation of the derivative markets: now an opaque 700 TRILLION $$$ black hole of corruption, insane leverage, unethical/criminal conflicts of interest, manipulation and who knows what else.

  • taxtherichnow

    "small banks", that statement alone is hilarious.

    I pity you poor naive people, or maybe you're just plain evil instead of stupid.

    • coyote3

      I pity the poor bank banks and oppressed businesses. Why don't we tax those on the lower income end of the spectrum? A lot of them pay no taxes whatsoever. Everyone needs to pay their fair share, during this Second Great Depression. Especially, those who take much more than they produce.

      • Jim

        They pay no taxes because they have no income.
        Goldman Sachs, Bank of America and etc have been given corporate welfare in spite of the fact that they were the bangsters who's dark economy created this mess.
        These well lobbied businesses have taken far more and produced not any thing except economic collapse.

        • coyote3

          Bravo Sierra, that is just a flat out lie. Certainly, there are some people who pay no taxes, because they have "no" income, but those are not the ones I am talking about. I am talking about those who do have income, but there tax liability is zero. Even worse are those, who are able to get refunds in amounts greater than they paid in taxes.

  • Old Maintenance Man

    Who can deny that Liberals(Socialists and Communists) strive unrelentingly to enlarge Government. They cannot point to a single instance in history where Government larger than what is necessary to provide for the three Constitutional duties of the Federal Government has become a runaway Government that soon enslaves it's Citizens. Look at Germany, China, Russia, Indochina and others. As a Founding Father said,(paraphrasing): Bind The Federal Government down with chains.

  • Asher

    Its all in the lie, Hitler embelished lieing. You tell the people you are creating jobs, freedom, and cutting regulations while doing exactly the opposite….More Deception from the Obama administration, laughing while they destroy America.